Aren’t you glad that today is April 15th? Have you paid your taxes yet? The answer to that is yes, you have paid your taxes. Every time you got your paycheck, you were also paying your taxes since they were withheld from you automatically. But have you filed your tax return yet? The good news is that the due date for tax filing this year is April 18th. TGIF!

For your entertainment, here are two videos. The first comes from ReasonTV about why you should pay your taxes.

Failure to pay taxes leads to Obama!

The next comes from Disney Studios as part of the war effort. Can you spot what really dates this cartoon? Hint: it’s not the anti-German or anti-Japanese stand.

What dates this cartoon is the discussion of saving money so taxes can be paid four times a year: March 15th, June 15th, September 15th, and December 15th. Because of the need for ready cash, tax collection was changed during World War II from quarterly payments to automatic deductions from the people’s paychecks. There is an unfortunate side effect of automatic payroll deductions, as explained by a government article:

Another important feature of the income tax that changed was the return to income tax withholding as had been done during the Civil War. This greatly eased the collection of the tax for both the taxpayer and the Bureau of Internal Revenue. However, it also greatly reduced the taxpayer’s awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future.

The top income tax rate rose from 68% in 1940 to 88% in 1942 to an astounding 94% in 1944. What sort of incentive does a hard-working business owner have to spend more time in the office or expand his business if his reward is the joy of being allowed to keep a mere six cents out of every dollar he earns? “But the rich should pay more than they already do! After all, they can afford it!” Yes, I have heard this cry from liberals. And most of the time they demand that “the rich” should pay more taxes. Rarely do liberals call for their own taxes to go up, but sometimes it happens. Author Stephen King asked a rally in Florida, “As a rich person, I pay 28 percent tax… what I want to ask you is, why am I not paying 50?”

That’s a good question. Why isn’t he paying more? If he really wants to pay more in taxes, nothing’s stopping him from voluntarily giving more money to the government. Does he need the heavy hand of government to force him (and everyone else, regardless of their personal inclinations) to pay more taxes?

Based on his own words, I guess he does. But he certainly doesn’t speak for me.

It’s the day that everyone loves to hate, April 15th. If you haven’t already filled out your 1040 tax form, there are only a few hours left to do so, or at least fill out an extension.

I have my 1040 form in an envelope right next to me ready to be mailed out today. Since we knew that we’d have to write a check this year, we didn’t see any reason to give the government our money any sooner than it is required. Since we had sold some stock last year, we knew we’d need to pay taxes, so we took 20% of our stock sale and placed it in a savings account. It has been earning us interest since, so why would we send a check to the Department of the Treasury any sooner than is necessary? On the other hand, when we expect a refund, I like to get that submitted as soon as possible. After all, I earned it by working hard, so I’d like it back as soon as possible.

Berkeley Breathed summed up my feelings about income tax in a “Bloom County” comic from 20 years ago. Click the image to see it full size.

Click for full size

I wonder if the IRS will notice that my envelope is addressed to the “Infernal Revenue Service”?

UPDATE (5/11/2010 4:45:03 PM): This has become my most popular page since I posted it just over a year ago. Breathed does a great job of summing up the tax experience for people.

Feel free to check out my many other posts! The latest are on the sidebar, but you can always check out the full archive. And a hearty welcome to the visitors from the IRS.

I have a simple proposal to solving our recession woes in three easy steps:

  • Drop the current corporate tax rate from the high rate of 35% to 10%.
  • Cut in half the capital gains tax rate for everyone.
  • Cut in half the income tax rate for everyone.

I choose these three steps based on the principle that you get more of what you reward, and less of what you punish. In each three cases, taxes punish business, investing, and working. By dropping the tax rates on all three, the punishment will be less, so the activity by the people will be more. If these three steps were taken today, the economy would go into overdrive almost instantly.

“But a lower tax rate means the government will get less money!” Really? Good! If we as a family or business have money problems, we respond by cutting back expenses. Government should do the same. Instead, government has responded by ramping up the spending. If you are up to your eye-balls in debt, does it make sense to max out even more credit cards for additional things you don’t need? In hard times, the government should be spending less, not more.

A trillion dollars spent here, a trillion dollars spent there. When will the government stop spending huge amounts of our money?

Today is April 15th, 2005. Here in the United States, it is Income Tax Day. Ugh.

Well, that’s not over a thousand words, so I’ll blather on a bit more about taxes. Did you that people used to write out the full check to pay for their taxes on this day? Withholding of taxes by one’s company or business didn’t start up until 1943, during World War II. At that point the federal government was desperate to get its hands on the tax money as soon as it could. And even if you ended up getting all of your money back, the government was still able to generate interest off the loan of your money. Nice racket, no?

Do you know that the bottom 50% of wage earners pay less than 5% of all the federal income taxes? Did you know that the top 5% of the wage earners pay over 50% of the federal income taxes? Whenever there is any talk of a reduction of tax rates, it will affect the top 50% of the nation’s wage earners because they are the people paying the vast majority of the taxes in the first place. This is why the Marxists in the Democratic Party love to vilify any tax cuts as being “just for the rich.” Since the top half of the wage earners in the U.S. pay over 96% of all the income taxes brought in, any reduction in taxes will affect the rich by definition.

Neither of these two issues should be news to you if you read my comments from last year. Also mentioned last year was Tax Freedom Day, as described by TaxFoundation.org. Tax Freedom Day was described last year as “the day when Americans finally have earned enough money to pay off their total tax bill for the year.” This year Tax Freedom Day will come on April 17th, up from last year, but still lower than the high point of May 3rd in 2000. Since President Bush’s tax cuts came into effect, Tax Freedom Day has come earlier. Looking at the following image outlining the historic trends of Tax Freedom Day, you can see the last four years are lower than anything since President Reagan’s first term.

Tax Freedom Day over time

There must have been some adjustments of the data with this year’s graph more than the leap year change mentioned, because there are several years that have shifted more than a single day from last year’s graph.

Figuring out taxes is a rite of passage for most American adults. And swearing at the complicated tax forms is commonly a part of this activity. The Drudge Report linked to a news article by Mary Dalrymple saying that Americans will spend 6.6 billion hours this year figuring out their taxes, 1.6 billion of those hours on the common 1040 form. That calculates to over five hours of tax swearing for every American man, woman, and child on just the 1040 forms alone. I don’t know about you, but I find it distressing to imagine the children I know spending five hours this year swearing at a pile of papers.

Time to put this article on pause while I run to pick up dinner — Indian food. Mmm… lamb korma.

Still here? Good. Now that I have some yummy food inside me, I think I can tell you that our bane this year has been state taxes. Filling out the 1040 was easy, but we spent our 5 hours swearing at Utah’s TC-40. We moved from Utah last year, so I knew I’d have to fill out two state income tax forms. Figuring out our new state’s taxes was pretty easy. Enter how much you made this year in the state, subtract the standard deductions, and calculate the tax from the result. The bottom line was a rebate of some of my money, and that was to be expected.

Since I knew how much I had made in Utah, I figured I’d be getting most, if not all, of the state taxes back. We were unpleasantly surprised to find out that we owed over $100 more to Utah. Cue the tax swearing. How the [bleeping bleep bleep] did we manage to owe more to Utah when we made less money there? Time to go through the agony of doing the taxes again, this time manually filling out the Utah forms rather than using TaxCut. Add this, swear, subtract that, swear, carry the 2, swear, look at the bottom line — more swear thoughts! It was exactly the same amount that TaxCut said we owed! Grrr!

OK, time to figure out why this was different. Let’s see — take the amount we earned in Utah, subtract the standard deductions — no wait! We didn’t start with the amount of money earned in Utah. It called for the whole amount we earned last year in both states, then subtracted the standard deduction. That is what Utah considers our state taxable income. Here’s the kicker: this method showed that our Utah taxable income was over $4,000 more than the amount we actually made in Utah. Double-you tee eff?

So TaxCut wasn’t on the fritz; it simply recognized the screwy way that the Utah legislature had written the tax code. With our faith in software rekindled and our poor expectations of government confirmed, we wrote out a check to the bloodsuckers in the capitol building.

I hope they get a paper cut.

Well, it’s after April 15th. I sure hope you have your tax forms filled out and in the mail by now. The government really doesn’t like slow-pokes when it comes to paying taxes. If you want to really grasp the concept of “eternal torment,” just skip paying your taxes one year. The government will be more than happy to explain in great detail just how tormented your life will become.

What would you do if you could make three wishes and change the way taxes are handled in the U.S.? What would you change if wishing would make it so? Let me give you my three wishes:

I. No tax withholdings

I wish that Americans didn’t have their taxes withheld from their paychecks. I would much rather make the full tax bill due and payable on April 15th. Withholding taxes from paychecks was one of the sneakiest changes made to the federal income tax. The change came in 1943 to help finance World War II. This temporary (yeah, right) change to the tax laws required employers to withhold federal taxes with each paycheck. The cash-strapped government couldn’t wait until April 15th for the revenue to come in, so it started collecting taxes all year long. This change allows the government to collect interest on tax money, basically putting your money to work for them before they would normally receive it.

The result of this tax withholding is a numbing of the pain of paying taxes. Since the tax comes out of our paychecks each payday, we don’t really miss the money. Granted, there is that first-time pain of looking at your paycheck and seeing just how much the government has taken, but you get used to it. Humans are remarkably resilient this way. I can’t tell you how many times I’ve heard people cheering about their tax refund. “Look at all the money the government is paying me!” But it’s not the government’s money; it’s your money. You granted the government the right to gain interest from your money, and in exchange you receive nothing other than the mistaken feeling that you have somehow made money.

This change would require that people set aside their own money each paycheck to pay for their income tax, but homeowners are used to paying for their property taxes in one lump sum. Some municipalities will break the property tax bill into 12 monthly payments to make it easier for homeowners to avoid a single large payment when the bill comes due. Removing withholdings would require people to exercise the fiscal self-control not to spend all their money without saving up their tax payments. It would also make people aware of just how much they pay each year in taxes.

II. A government that spends only what it is lawfully allowed to spend

My second wish would be for a Federal Government that would only spend money on things it is permitted by the Constitution to spend. Article 1, Section 8 of the Constitution outlines the only things that Congress is permitted to do. Sadly, it is the normal state of things for government bureaucracy to grow. Ours has had two centuries to grow far past its normal and Constitutionally permitted bounds.

If the government were only to spend money on those things that were mandated in the Constitution, it wouldn’t need a budget in the trillions. Thomas Jefferson was correct when he said, “That government is best which governs least.” Ours has been doing more and more for the citizens of this country, since we as citizens have been asking, even begging, the government to do more and more to take care of us. The problem is that the government which can do much for you, can also do much to you.

III. A simple flat tax

My final wish would be for a simple flat tax. This would apply to everyone, and there would be no tax loopholes, penalties or deductions. Since my second wish would reduce the overall cost of government, the resulting tax burden to the people would be dramatically less. I would guess that such a flat tax need not be more than 10% of a person’s income.

When I described these wishes to my wife, she asked at what point the flat tax would kick in. I explained that the tax would be 10% of all income. In other words, a CEO who makes $60 million would pay 10%, just the same percentage as a minimum-wage burger flipper would pay. When I have proposed this before to people, they point out that 10% of $1 million doesn’t hurt as much as 10% of $100 because the millionaire with $900,000 left over certainly has more buying power than the kid with only $90 left. I agree that this is true, but I still would not exempt the people at the bottom end of the wage scale. People who pay taxes are participants in their country’s government. Currently the bottom 50% of wage earners in the U.S. pay less than 4% of the overall income taxes. That means that half the country doesn’t care about tax rates because they don’t pay a significant amount of the taxes that run the government. Is it a coincidence that we never reach a voter turnout of 50% or more during an election? Could it be that those who stay home feel they have no part in choosing the people in government since they do not contribute with taxes? If everyone paid the same rate, it would make it much harder for Congress to pass a law increasing that rate. Democrats get away with demagoguing the issue of tax cuts/hikes by claiming that they are only for “the rich.” But with a flat rate, you could not gore the rich without having the ox also goring you.

“But charging rich people the same as the poor isn’t fair!” Really? How do you define fair? Is it fair that half of the U.S. sits on its hands while the other half does the heavy lifting? I cannot see that as fair. But if everyone is taxed at the same 10%, then everyone pays at the same rate. That is fairness. It would also mean that computing your taxes would be much easier than it currently is. All you’d have to do is take 10% of your income and write the check. You’re looking at a task that would take a few minutes of time, rather than an average of 28 hours as estimated by TaxFoundation.org. I don’t know about you, but I have things I’d much rather do with my time.

Speaking of which, I think I’ll go off and do some of them.

Easter Sunday was special this year. While the most special part was commemorating the resurrection of Jesus Christ two thousand years ago, something extra happened on April 11th that you probably didn’t notice. Easter Sunday was Tax Freedom Day for 2004.

So what is Tax Freedom Day (TFD)? “Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year.” [1] This means that after working 65 days to pay your federal Income Tax and another 36 to pay your state Income Tax, you are now finally working for yourself. This makes 101 days of the year that an average American needs to work to pay for taxes. That’s an average of 27.6% of the year’s work.

The graph above from TaxFoundation.org shows the TFD for the last four decades, and you can see that TFD has come early this year. In fact, it has been 37 years since TFD has come on or before April 11th. You would have to go back to 1967 when TFD arrived on April 10th. You can see that TFD came as late as May 2nd, in 2000. After the seven year run-up, I am glad to see that we are on a downward trend. Of course, this can change as fast as a Democrat can say “tax hike.”

Currently, America spends 101 days to pay off the Federal and state taxes. This is more than housing and food costs at 97 days together. So, on average, Americans spend almost 30% of their money as taxes to the government. Here is something that was said by the prophet Samuel about 3,000 years ago when the people of Israel demanded that a king be placed over them:

And he will take your fields, and your vineyards, and your oliveyards, even the best of them, and give them to his servants. And he will take the tenth of your seed, and of your vineyards, and give to his officers, and to his servants. And he will take your menservants, and your maidservants, and your goodliest young men, and your asses, and put them to his work. He will take the tenth of your sheep: and ye shall be his servants. And ye shall cry out in that day because of your king which ye shall have chosen you…”
1 Samuel 8:14-18

Is there any difference today with our government and what Samuel told the people of Israel their kings would do to them? Well, there is one difference: they were only taxed 10%. Currently, the highest Federal income tax rate is in the 30s. But this rate has gone as high as 90%! How would you like it if you only got a dime for every dollar you made? If slavery is working 100% for someone else, then wealthy Americans during the days before President Kennedy dropped the upper tax rate were 90% slaves! How much of a difference is there between 90% and 100%? Not much at all, but there are people today who yearn for these tax rates of old. I listened to Robert Reich, Secretary of Labor under President Clinton, on the Sean Hannity show excited about the idea of raising the tax rates on the rich. According to him, the rich just were not paying their fair share.

But what is their “fair share?” Below is a table printed by TaxFoundation.org from data compiled from the 2001 tax recipts.

Summary of Federal Individual Income Tax Data, 2001

Number of Returns
(000)

AGI
($000,000)

Income Taxes Paid
($000,000)

Group’s Share of Total AGI

Group’s Share of Income Taxes

Income Split Point

Average Tax Rate

All Taxpayers 128,817 6,241,036 887,682 100.0% 100.0% 14.2%
Top 1% 1,288 1,094,296 300,898 17.5% 33.9% above $292,913 27.5%
Top 5% 6,441 1,996,492 472,823 32.0% 53.3% above $127,904 23.7%
Top 10% 12,882 2,690,589 576,163 43.1% 64.9% above $92,754 21.4%
Top 25% 32,204 4,071,034 736,053 65.2% 82.9% above $56,085 18.1%
Top 50% 64,409 5,379,286 852,642 86.2% 96.1% above $28,528 15.9%
Bottom 50% 64,409 861,750 35,040 13.8% 3.9% below $28,528 4.1%

Source: IRS (formatted by taxfoundation.org)

In this table, you can see that the top 1% of wage earners in the U.S. paid for 33.9% of all income taxes. To put that in perspective, that’s like sitting down to dinner with 100 people and asking one guy to pick up a third of the whole dinner bill. Now, how can that be fair in any sense of the word? “But Captain, it is only right that the rich guy pick up the tab for the poorest ones!” Ah. This is very much what Robert Reich was proposing, and can be summed up in this classic statement: “From each according to his ability, to each according to his need.” Try mentioning that idea the next time you are in a crowd, and watch the people nod their heads in agreement with it. Then tell them that this statement was written by Karl Marx, and it is a major component of the Communist Manifesto. Do you find it interesting that liberal leftists like Robert Reich espouse this idea?

Here are the numbers I find most distressing: the bottom 50% of wage earners pay only 3.9% of the Federal income tax, while the top 50% pay the rest at 96.1%. When a liberal tells you that President Bush wants to give a tax break to the rich, remind him that the rich are paying the damn taxes in the first place!